Many bankruptcy clients wait until they get served by the sheriff with a collections lawsuit before seeking help with their financial problems. Better results can be achieved by acting earlier, but all is not lost merely because a lawsuit has been initiated. My first reaction when fielding such a desperate call is, “Do not panic, we can go over your options and figure out the best response for you.”
Being served with a collection lawsuit does not mean the sheriff is going to come back to take your property or haul you off to jail. Both of those two things may be hinted at by collections agencies (often illegally), but are simply not going to happen because of a lawsuit.
After a complaint is served in North Carolina, you generally have 30 days to respond to the complaint and explain why you do not owe on the debt. Most of the time, the debt is owed, so defending the lawsuit will probably not result in a positive outcome. If you do not respond within those 30 days, the creditor will get a default judgment. A default judgment is a court order which indicates you owe money to the creditor/plaintiff.
This judgment can help the creditor collect money owed by seizing assets through an additional legal process which takes time after the court awards the creditor a default judgment. If a default judgment has been issued against you, be careful to look for a “Notice of Right to Claim Exemptions” to be delivered. You have 20 days after receiving this form to declare what property you own which cannot be seized by a judgment creditor.
The good news is that the collection process can be halted immediately with the filing of a bankruptcy case. When you file a bankruptcy case, the court issues an “automatic stay” which halts any collection activity, including lawsuits, until the bankruptcy court can review your case.
The bottom line is that getting served with a collection lawsuit is not the end of the world. It is, however, an indication of a larger problem financially. You should determine your best course of action by seeking the advice of a professional. For those of you in Western North Carolina, I would be happy to speak with you during a free initial consultation.
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